Analyzing a deal is going to be the most important part of buying foreclosures. Get it right and you will make great returns and purchase regularly. If you get it wrong, you will either lose money or rarely purchase anything. Once you have a property in your line of sight, you will need to put a potential value on that property, determine your rehab costs and run a reverse spreadsheet to determine your max purchase price that will meet your minimum desired return on investment. Errors at this point can cost you, big time. One of the issues with seasoned investors is amateurs dropping the ball in their deal analysis and paying too much for properties; here everybody loses, a new investor loses money on a property that had potential for an experienced investor to make money. Far too often we see amateur investors in a bidding war at an auction, driving the price up which likely ends up in major losses. There’s also the flip side of this where, poor deal analysis leads to an investor determining a maximum bid that is way too conservative to be competitive. In either situation you’re either wasting time, money or both.

Note: verifying information is part of your deal analysis, but was already touched on in part 2.

Valuation

                Through verifying the property information you have the property specs; beds, baths, square footage, etc. You will need to get an initial potential value. This is going to be a paper value based mostly on the characteristic of the property directly compared to surrounding properties. When pulling comps, do not use just a simple radius, look at a map and look for obvious boundaries that determine a neighborhood and use properties within the neighborhood of the property you are analyzing. You will be surprised by the how much property values can differ depending on which side of a major street they’re on. Ideally you want to find at least three recently sold properties with similar characteristics as the subject property. Because you haven’t driven by the property yet, compare the subject property to the comps as if it were a similar style home which you have already rehabbed. Take into account the location, size, year built and condition of your comps to determine your initial potential value. This takes skill and the better you are at this the more money you will make. It will also vary from investor to investor depending on the quality and extent of rehab work done. As always this part of the process is going much easier if you have access to the mls. If you don’t have mls access, you will need to use a 3rd party provider such as accuflip.com. DO NOT, use any valuation from Zillow, Trulia or any other listing source. You absolutely must be able to see the specs and location of the comps, and if available, description and pictures. Websites like AccuFlp.com are designed for deal analysis and provide the comps to with their automated value.

Now, you or a partner need to go put eyes on the property. A lot can change here. This is where you are really going to compare the property to the recent sales, so yes, you are driving by the comps as well. You need to check on how the property really holds up to the neighborhood. Is it the same style? Quality? Or is there some characteristic that makes it more or less desirable than the comparable sales? You will have to use your imagination, because you have to look past the properties current condition and imagine what it’s going to look like after you rehab it, but be careful, keep your imagination within reason. Don’t over remodel in your head.

On top of narrowing in on the property’s true potential value you need to determine two other factors, occupancy and rehab. Occupancy is usually fairly straight forward; does it look occupied or not? If it looks occupied, what does the exterior tell you about the occupants? Is it well kept or ar